Monday, June 11, 2007

Unanimous Supreme Court: ERISA Fiduciary Did Not Need to Consider Merger Option

4united_states_supreme_court_1129_2 Further clarifying the scope of fiduciary responsibility under the statute, a unanimous Supreme Court issued its decision today in Beck v. PACE Int'l Union, No. 05-1448 (U.S. June 11, 2007), which holds, per Justice Scalia, that the implementation of a decision to terminate by purchasing annuities rather than merging with a union's multiemployer plan ”does not violate any ERISA fiduciary duty (previous posts here and here).

Here are some highlights from the decision:

We decide in this case whether an employer that sponsors and administers a single-employer defined-benefit pension plan has a fiduciary obligation under the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U. S. C. §1001 et  seq., to consider a merger with a multiemployer plan as a method of terminating the plan.

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It is well established in this Court’s cases that an employer’s decision whether to terminate an ERISA plan is a settlor function immune from ERISA’'s fiduciary obligations. And because "“decision[s] regarding the form or structure"” of a plan are generally settlor functions, Hughes  Aircraft  Co., 525 U. S., at 444, PACE acknowledges that the decision to merge plans is “"normally [a] plan sponsor decisio[n]"” as well . . . . But PACE says that its proposed merger was different, because the PIUMPF merger represented a method  of  terminating  the Crown plans.  And just as ERISA imposed on Crown a fiduciary obligation in its selection of an appropriate annuity provider when terminating through annuities, see 29 CFR §§2509.95–1, 4041.28(c)(3) (2006), so too, PACE argues, did it require Crown to consider merger.

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There is, however, an antecedent question. In order to affirm the judgment below, we would have to conclude (as the Ninth Circuit did) that merger is, in the first place, a permissible form of plan termination under ERISA . . . .

And we would have to do that over the objection of the PBGC, which (joined by the Department of Labor) disagrees with the Ninth Circuit, taking the position that §1341(b)(3)(A) does not permit merger as a method of termination because (in its view) merger is an
alternative to (rather than an example of) plan termination . . . .

In reviewing the judgment below, we thus must examine “whether the PBGC’s policy is based upon a permissible construction of the statute.” Id., at 648. We believe it is.

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For all of the foregoing reasons, we believe that the PBGC’s construction of the statute is a permissible one, and indeed the more plausible. Crown did not breach its fiduciary obligations in failing to consider PACE’s merger proposal because merger is not a permissible form of termination. Even from a policy standpoint, the PBGC’s choice is an eminently reasonable one, since termination by merger could have detrimental consequences for plan beneficiaries and plan sponsors alike.

I actually did not see this one coming (though I barely predicted the outcome), but the Court reached unanimity in this case by turning this complex ERISA question into an easier one of Chevron deference under administrative law (a tact Justice Breyer suggested in oral argument).  I thought the decision would come down under the settlor-function and find that Crown was not a fiduciary under the circumstances.  Instead, the Court seems to assume, for the sake of argument, that Crown is a fiduciary, but could not have breached any fiduciary duty by not accepting the merger proposal because merger was not a permissible course Crown could have taken consistent with its fiduciary obligations under the Act.

In this vein, and significantly, the decision is not a complete loss for employees under ERISA. The Court seems to be saying, though not expressly, that the implementation of a decision to terminate a plan is a fiduciary act, subject to normal fiduciary obligations.

The sleeper in this decision may be footnote 3, which instructs employers in the future to draft their ERISA plans in a way that disallows plan mergers under any circumstances:

We would not have to decide that question of statutory interpretation if Crown’s pension plans disallowed merger. Any method of termination permitted by §1341(b)(3)(A)(ii) must also be one that is “in accordance with the provisions of the plan.” Crown thus could have drafted its plan documents to limit the available methods of termination, so that merger was not permitted.

Very Firestone-like in instructing what employer should do in the future to have a more favorable state of affairs in these cases. My thought is that going forward more plans will do this in order to avoid coming close to the fiduciary line again in these cases when they terminate their plans.

PS

https://lawprofessors.typepad.com/laborprof_blog/2007/06/unanimous_supre.html

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